Introduction
In the 21st century, the ability of organizations to surmount the myriad of challenges that exist will sorely depend on how they are able to transform their processes to be in harmony with a host of fundamental variables such as technological advances, redefined values, cutthroat competition, and uneven customer demands. Assiduous and conscientious managers must always critically analyze the market trends and have the right kind of information at their fingertips if they are to capture the opportunities for growth (Morgan, 2008).
It should be within the realm of understanding of such managers that, not only does proper understanding of market trends and organizational frameworks dictates the business strategy, but it also dictates the success or failure of the organization since a well implemented business strategy results in success (Poole et al, 2000). This paper aims to critically evaluate how Harley-Davidson strategy of transformation dictated its success in a tumultuous and almost saturated motorcycle market.
The idea to establish Harley-Davidson was envisaged in 1903 by three entrepreneurs, Arthur Davidson, Walter Davidson, and William Harley. Since then, the company has experienced a lot of challenges, but has been able to safely navigate its way to its present state. Harley-Davidson achieved tremendous growth during the decades following its inception, becoming the world’s leading motorcycle company in 1918 after it produced and sold 28,000 motorcycles (Nolan & Kotha, 2007).
During the early phases of its existence, the company was also known for its innovative ideas and value-added products. But overall, the business environment has not been any rosier for the motorcycle giant, especially after Japanese motorcycle makers penetrated the American market. The Japanese companies, namely Yamaha, Honda, Suzuki, and Kawasaki, came up with efficient business strategies that left Harley-Davidson with no choice other than to transform its processes.
Harley-Davidson Transformation Process
Before evaluating the Harley’s transformation process, it is imperative to note that change is inevitable in any organization, and it heralds the transformation process (Sushil & Rifkin, 2010). This significant process, however, must be handled with diligence and professionalism for it can work against the strengths, objectives, and capabilities of an organization if mishandled, often resulting in eventual collapse of the entity.
In equal measure, lack of cognizant and well synchronized efforts in ascertaining which business strategy needs to be preserved and further managed to influence the change process have been accused of not only returning low levels of change success within the organization, but also for initiating deficiencies in effective strategy development and implementation (Kotter, 1996).
Such a scenario happened to Harley-Davidson in 1965 when the company was acquired by heavy-industry conglomerate AMF. The new management, formed after the friendly takeover, introduced changes that almost sent the Harley into permanent oblivion (Nolan & Kotha, 2007).
The competition from Japan motorcycle manufacturers, more than anything else, heralded Harley-Davidson transformation process. Honda was the first to enter the US market in the 1950s, bringing new management strategies, hence threatening the market share that Harley-Davidson enjoyed for decades.
According to Kotter (1999), organizations are forced to adjust to new ways of doing things due to stiff competition in the market place and reorganization of Business strategies. In this perspective, Harley-Davidson had to come up with ways to stop the Japanese manufacturers, especially Honda, from entrenching themselves into the large unexploited customer base of aging males and women.
The indecisiveness on the part of Harley-Davidson’s management team on what type of transformation to adapt in the face of adversity cost the company dearly during the decade of the 1970s when Japanese motorcycle manufacturers, with full knowledge of Harley’s indecisiveness, were able to manoeuvre their way to the top, accounting for more than 85% of U.S. motorcycle sales in 1973 (Nolan & Kotha, 2007).
According to Murray & Richardson (2002), organizational transformation must be orchestrated in a planned and systematic manner.
Harley-Davidson initial transformation process was done haphazardly, especially after the acquisition of the motorcycle manufacturer by AMF. According to Murray & Richardson (2002), organizational change and transformation should be all-inclusive, and managers must never concentrate on changing some systems at the expense of others. This, however, is what the new owners of Harley did; concentrating on expanding the production of motorcycles using less-skilled labour force to fend off stiff competition from the Japanese.
This strategy, however how well calculated it was, fell flat on its face as another subsystem of Harley-Davidson – quality – was highly compromised (Nolan & Kotha, 2007). It should be noted that in organizational change and transformation, “…because all parts of the system are integrated, if there is lack of fit, a change in a subsystem creates imbalances or disrupts other systems” (Sisaye, 2001).
Congruity in all Harley-Davidson’s organizational and technical subsystems should have been taken into consideration before AMF effected the changes. Their changes didn’t see the light of the day due to the stated objectives, and Harley-Davidson sunk back into perpetual loss making.
The real positive transformation for Harley-Davidson started in the decade of 1980s when the Company’s new owners, led by CEO Vaughn Beal, visited Honda’s Ohio plant to access why Honda remained at a competitive advantage in the market. The visit was an eye opener as Harley’s senior managers realized that they had to undertake a complete overhaul of their systems.
According to Nolan & Kotha (2007), Harley-Davidson’s managers were particularly pleased with Honda’s neat and uncluttered assembly line; smooth flow of work processes that required minimum paperwork; a cheap and efficient Just In Time (JIT) system used to control inventory; and a working philosophy that involved designing and building motorcycles for order rather than for keeping in the showrooms.
In a sharp contrast, Harley-Davidson had invested heavily in a computerized inventory that ended up using huge resources for work-in process (WIP) (Nolan & Kotha, 2007). Better management and an emphasis on production of high quality goods were some of the other benchmarks that Harley-Davidson managers learnt from Honda.
Employing Japanese production models as a blue print, Beals and his management team developed and implemented adaptive systematic changes comprehensively set out in what the managers referred as the productivity triad.
Sisaye (2001) postulates that organizational changes must be undertaken in a systematic manner using well laid-down strategies and processes that have been aptly informed by, among other things, the market forces, organizational values, drive for success, and retaining competitive advantage. In the triad, Harley’s employees, especially the line workers, were encouraged to become active and dynamic contributors to the organization’s decision making process (Nolan & Kotha, 2007).
According to Rickards (1999), such an arrangement not only allows innovative and creative ideas to be inculcated into the organization, but it also motivates employees to become better performers in their work environment. The employees were also required to participate in the newly created quality circles to improve the quality of motorcycles.
Second, Harley-Davidson engaged in a complete transformation of its core processes, dismantling its WIP inventory system and replacing it with a clone of Honda’s JIT inventory system known as materials-as-needed (MAN) program (Nolan & Kotha, 2007). These enabled the company to significantly reduce its inventory, thereby freeing up the much needed capital.
Reduction of inventory also impacted positively on the quality of products. In the transformation of core processes, employees were taught to investigate how quality issues developed, including how the problems could be traced and corrected early in the production process through a newly developed program known as Statistical Operator Control (SOC).
The management’s hope was that such transformation of processes would ultimately result in significantly improved product quality. They were not disappointed. Harley-Davidson approached the U.S. government seeking to be offered with a five-year, self-liquidating tariff to protect itself from stiff competition, especially from the Japanese motorcycle makers. The request was granted. The company engaged in extensive research and development (R&D) activities in the hope of developing new products.
The company also undertook to transform itself from an informal to a more formalized organization, and came up with a program known as the Leadership Institute to assist in the process of formalizing its structures. All redundant positions existing in the company were done scrapped since they seemed not to add any value to the overall growth or strategy of the company.
What’s more, the company inculcated the concept of developing teams rather than individuals to assist in running of its processes, including efficient time management. The company didn’t stop there but went ahead to initiate new rewards and incentive systems strictly aimed to pay for performance and increase employees independence. It was also the purpose of Harley to transform its operations wholly by exposing and educating its staff, including line workers about the interrelation between products, cash sales, and profitability.
The company also prepared non-technical explanations on how various processes such as cash flows and flexible production processes impacted its financial success. All these efforts aimed to prepare the workers for effective decision making processes. According to Murray & Richardson (2004), workers should be part and parcel of the change process, and an informed workforce is always viewed as an asset to the organization.
The Transformation’s Contribution to the Success of Harley-Davidson
According to Morgan (2008), “…businesses that are constructed around a strong formative idea that resonates with both staff and customers grow up to the point where the original idea runs out of steam” (p. 27).
This is what precisely happened to Harley-Davidson, igniting a flurry of acquisitions and restructurings purposely aimed to re-establish the company’s former domination in the market. Harley-Davidson came very close to annihilation, but the transformation processes spearheaded by CEO Beals and his team of managers saved the company from turning into yet another statistic in organizations that either wrongly initiated the change process or failed in total to adapt to a changing business environment.
The visit to Honda’s Ohio plant, in particular, made the management to put their priorities in order. According to Morgan (2008), “…a careful evaluation of how transformation relates to the existing organizational core can significantly reduce transformation time” (p. 28).
For Harley, the transformation undertaken in the 1980s brought success to an entity that was so close to total collapse. Under the new system, the company’s inventory turn increased drastically, reaching 17 times a year in record time. In equal measure, the WIP inventory, obviously one of the weakest points for Harley, was dramatically reduced by 75 percent (Nolan & Kotha, 2007). The productivity triad put a lot of emphasis on quality production of motorcycles.
Within a few years of its implementation, scrap and rework on the motorcycles went down by 68 percent. The sealing of the above operation lapses through undertaking a complete transformational process saw Harley’s U.S. revenues increase by over 80 percent, with revenues received from international sales rising by 1.7 times. These figures demonstrate the fact that the transformation undertaken under the productivity triad was beginning to return positive results for Harley.
On its part, Kawasaki, a Japanese competitor incorporated in the U.S. in 1967, engaged in intricate and sustained campaigns aimed to curve a market niche for the motorcycle manufacturer in the U.S. as well as internationally.
Kawasaki was one among four Japanese motorcycle manufacturers that entered the U.S. market in the 1970s, bringing with them quality, cost-effective, faster, and value-added motorbikes. According to an industry expert, Kawasaki motorcycles could generate 100hp/liter, and had the capacity to exceed 130mph in speed (Smith, n.d.). The competition for the shrinking market share was one of the triggers that made Harley-Davidson embark on the above discussed transformation process.
Kawasaki, however, could not match the comeback initiated by Harley-Davidson in the 1980s up to 2000. First, it is imperative to note that Harley-Davidson enjoyed a special bond with the American society, and as such, it was readily welcomed back after undergoing the transformation process aimed to streamline its operational processes.
According to Gale (2002), “…that the health of motorcycle sales is dependent on one generation of consumers is illustrated by the rising average age of U.S. bikers. From an average age of 34 years in the 1980s, by the early 2000s, the average Harley rider was approximately 46 years old” (para. 3). This could be interpreted as a distinct advantage for Harley to the disadvantage of Kawasaki in that, as people age, they tend to have more disposable income and hence are likely to purchase more products than youngsters.
Harley’s aging population was well endowed with deep pockets that helped to propel the company back into the limelight. Kawasaki dealt with motorcycles that found appeal from youngsters, implying that the manufacturers could not benefit from the shifting age trends of motorcycle riders unless it’s too transformed its processes.
The transformation process initiated by the senior managers in line with the productivity triad continued to pay great dividends for Harley-Davidson. According to Dale (2001), the manufacturer’s sales climbed 113% between 1988 and 1996. The company was also able to increase its market share by an estimated 97%, not mentioning the fact that, in 1987, the company requested the U.S. government to dissolve the import tariff protection it had initially requested.
This request was sent one year ahead of schedule, implying that the transformation process had achieved tremendous success. As a further demonstration of the transformation’s success, Harley-Davidson was listed on the New York Stock Exchange in 1989 through a well received Initial Public Offering (Nolan & Kotha, 2007). In 2001, Harley-Davidson controlled an estimated 44% of the U.S. motorcycle market (Dale, 2002).
The import tariff protection requested by Harley Davidson immediately after the 1981 management buyout plan was intended to shut other motorcycle producers out of the U.S. market, Kawasaki included. The Japanese, however, are a resilient lot, and responded by setting up an assembly plant in Nebraska (Brown, 1997).
This implies that Harley’s transformation process triggered an independent entity – Kawasaki – into action to reorganize the way it conducted its business in the U.S. According to Morgan (2008), most changes in the organizational systems and processes occur as organizations attempts to react to sudden environmental stimulus. Failure to change the processes to coincide with the requirements of the stimulus may ultimately condemn the organization into oblivion.
But despite Kawasaki interventions, Harley’s market share continued to grow due to its increasingly popularity, outstanding marketing initiatives, innovative and creative ideas, enhanced dealer-customer communication networks, and outstanding customer service. It should be remembered that these variables had been inculcated in Harley’s transformation strategies included in the productivity triad.
A Different Management Perspective
Against all odds, the management buyout team led by Vaughn Beals had done an awesome job in successfully turning Harley-Davidson from eminent collapse into profitability. For this, they deserve a part on the back. Some issues, however, could have helped the firm to return much faster into profitability if they had been done a little more differently.
First is the issue of Identity. According to Morgan (2008), “…identity is the concept of an organization that describes what the company is, and it is the central element in the concept of branding” (p. 28). Harley-Davidson had established for itself a well-known identity in the American motorcycle consumer market before problems in the form of stiff competition started cropping up in the late 1960’s (Nolan & Kotha, 2007).
However, the transformation process didn’t consider the issue of maintaining identity to the depth and details it was supposed to, preferring to largely rely on the blueprint developed after the factory visit to set the companies transformational and competitive strategies. Although it worked favourably for the company, it would have been nice if the identity issue was included, and indeed expounded on since it is a major selling point.
Also, the aspect of long-range intention could have been critically looked into in the hope of ensuring that the transformation process was not merely meant to fend off competition. Morgan (2008) posits that long-range intention is the aspect or feature that vehemently describes what the company is dedicated to in the long run. According to the case, Harley’s both short-term and middle-term aspirations are well articulated in the form of streamlining processes to fight competition and remain relevant in the market.
The company’s long-term intentions, however, are not articulated, and this could bring problems for the company in the distant future. According to Poole et al (2000), organizational change is a continuous process, and although it may appear difficult to outline what may happen in the future due to the ever changing market environment, it is always good to forecast the future by inculcating the organization’s long-term intentions and objectives into the blueprint and any other processes or criteria used to initiate and drive change.
The transformation process initiated by senior managers did extremely well in inculcating to employees high levels of commitment and sense of purpose. Employees are the cornerstone of organizations, and must therefore be actively engaged in the change process (Morgan, 2008; Poole et al, 2000). The management, however, failed to develop a clear vision for the organization to coincide with the changes and restructuring processes by the company.
According to Kotter (1996), a well-driven change process enables organizations to shed its former past in the event that past experiences were negative or build on its past in the event that previous experiences were beneficial to the organization. In equal measure, a clear vision clarifies to the employees the general direction for change, and motivates them to be supportive to the whole process of change.
Harley-Davidson used to enjoy a splendid past, with its traditional Harley motorcycles perceived as an icon of strength and raw power in the American society (Nolan & Kotha, 2007). Such positive experiences should have been used by the management team to trigger positive market reactions through instilling them in the new vision of the restructured company. With an inspiring vision, individuals can envisage exciting possibilities and start to act in harmony with them.
Here, emphasis should have been put on making Harley more vision-directed and value-focused as opposed to being goal-directed and price-focused (Kotter, 1996). This way, the motorcycle giant could have achieved its growth strategies with much ease due to embracing an all inclusive transformation process. Still, Harley’s stakeholders cannot complain that the changes made by the management team were not a step in the right direction.
Justification
No one can ever possibly argue that Harley’s top management team led by CEO Vaughn Beals took the wrong management decisions in transforming Harley back into its former glory. Indeed, all available evidence points to the fact that their blueprint worked wonders in transforming an entity that was headed into oblivion. The above additions, however, are justified based on a number of factors and opinions.
First, the issue of maintaining identity is fundamentally important since Harley used to have its most loyal customers known as baby boomers. Past and present research reveals that this clientele, though in its sunset years, still have a huge impact on the motorcycle market as they have access to huge amounts of disposable income than the youngsters (Gale, 2002). As such, the company could have benefited much more if the issue of identity was given due consideration when the rescue package was being prepared.
According to Morgan (2008), “…if an organization has historically seen itself as an efficient manufacturer of products, it may have a difficult time overcoming the mental models of the staff and the market perception held by customers…” (p. 28). Such a scenario must have happened to Harley during its rejuvenation attempt principally because the issue of its former identity was not factored in.
It can be argued that the company failed to cope with intense competition from Japanese motorcycle manufacturers in the late 1960s and 1970s due to lack of long-range intention. First, the company could have prepared beforehand for the intense rivalry in market control if its long-term intentions and strategies were functional. But it appears to have been caught unawares by the Japanese competitors (Nolan & Kotha, 2007).
Second, the chronology of events in the case demonstrates that such failure could happen again if the company does not state its long-term strategies and work round the clock to develop a transformation process based on what it wants to achieve and where it wants to be in the future.
The case aptly demonstrates that Harley was a market leader before stiff competition dampened its competition strategies. Other players could use the same approaches to win over the market share if effective long-term strategies, including market forecasts, are not put in place. This justifies the inclusion of the company’s long-range intention in its transformation process
Lastly, vision is instrumental in achieving success. Past experiences of Harley, especially in the hands of its first acquirers AMF reveals a total lack of vision and direction. The company’s total earnings plummeted to its worst ever during this period, and AMF had to negotiate a loss-making management buyout plan to save its face (Nolan & Kotha, 2007).
This, however, can be attributed to a clear lack of vision on the part of the AMF management as it wanted to transform Harley into a profit making enterprise overnight. The management enlisted unskilled or poorly skilled labour force and engaged in mass production of motorcycles in the hope of making profits. But this worsened issues due to their lack of vision for the industry. Hence, the decision to propose vision as one of the cornerstones that will guide Harley into the next growth frontier is justified.
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